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Upgrade for banks, with caution

Ratings agency Standard and Poor’s on Tuesday upgraded its ratings for Alpha, Eurobank, National and Piraeus Bank to CCC+ from SD (selective default), with a stable outlook.

The upgrade came after a further relaxation of capital controls in Greece. “We view the lifting of this ban as a significant relaxation, as it could allow for cash deposits to be brought back into the banking system, raising confidence in the Greek banking sector,” Standard and Poor’s said. “We expect some minor deposit inflows in the coming months.”

However, the ratings agency also added a note of caution.

“The upgrades reflect the banks’ fragile financial profiles in the context of a weak economic and operating environment in Greece, a high level of nonperforming exposures, and poor profitability,” it said. “We anticipate that the four banks’ funding positions will remain highly unbalanced, resulting in their continued reliance on liquidity facilities provided by the European authorities to cover their needs.”

Moving forward, the management of nonperforming loans will be very important for Greek banks. Kathimerini understands that the Bank of Greece has completed drafting a new code of conduct that lenders will have to abide by in dealing with the bad loans.

It gives the banks and their customers a greater range of options regarding reaching a settlement. Home owners, for instance, will have the option of voluntarily handing over their property to the bank if they cannot keep up mortgage repayments, or they could allow the bank to take ownership and continue to remain in the property in return for paying rent to the lender. Other options include the owner selling the property with the bank’s assistance.

The new code sets out the steps that the bank must follow from the first moment it contacts its customer regarding the nonperforming loan so that an agreement on how the debt can be settled is reached within six months. The customers will receive formal notification that they are in arrears if they miss a loan repayment by 60 days.